European Central Bank: Will one further hike be followed by a prolonged rate hold? – Commerzbank

The European Central Bank (ECB) is expected to hold its deposit rate at 2.75% throughout 2027, according to Commerzbank economists. Their forecast envisages no change from 2.50% in October, followed by an increase to 2.75% in December as Eurozone inflation remains persistent. Rates are already viewed as slightly restrictive, while inflation is projected to ease towards target by late 2027.

Will a December rate rise precede an extended pause?

"We expect oil shipments from the region—which have already increased significantly in recent months via so-called “dark transits”—to normalize despite the latest setbacks. In the medium term, oil prices, and thus energy prices, are therefore likely to fall again."

"Given the persistently high inflation in the eurozone, we expect the ECB to raise interest rates once again in December and to keep them unchanged in 2027."

"According to some ECB Governing Council members, this is already the case at the current key interest rate of 2.5%. Based on the comments regarding the neutral interest rate that we have gathered over the past few months, a deposit rate of 2.75% would likely be considered slightly restrictive by the majority of Governing Council members as well."

"Factors pointing against further interest rate hikes in the new year include the decline in oil prices we anticipate, the dampening effect of higher bond yields, and the assessment by many central bankers that key interest rates will already be having a restrictive effect by then."

"Even though there is a need for action, neither the Fed nor the ECB will change interest rates next week. This is supported, among other things, by statements from officials at both central banks."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)